Advanced Search

Final Summary

You can see from the example on the previous page that the exchange rate can have a significant effect on a business. In that example, the size of the effect was caused by the size of the fall in sales from the US. Many firms might find that sales do not change by quite as much, but changes in exchange rates can very quickly affect both costs and revenues. This assumes, of course, that the business engages in trade abroad - some firms do not and so are not affected by exchange rates very much at all.

Some companies can protect themselves against currency movements by buying currencies on the 'forward currencies market'. See our Glossary to get a definition of this. Copyright: Josep Altarriba, from stock.xchng.

These final two questions are designed to encourage you to think about how a business might cope with changes in exchange rates and also how different movements can have different effects.

• Suggest two ways that Trimbike might use to offset the problems they face through changing exchange rates.
• What would be the effect on Trimbike be if the exchange rate moved the other way in each case? Explain your answer.

| Index | Previous |